When you buy a property, the value is not always what you expect it to be. A property’s value can change over time, and this is why a professional appraisal or valuation is essential. Read on to learn more about property valuation and why it matters to investors.
What Is a Property Valuation?
A property valuation is an estimate of a property’s worth based on factors like market value, repairs needed, and location. A professional appraiser considers all these factors to come up with a fair market value for the property.
For example, let’s say you’re looking at a fixer-upper in a desirable neighborhood. The asking price is $200,000, but you know it needs at least $20,000 worth of repairs. A professional appraiser would consider these repairs and estimate the property’s value closer to its actual market value.
Many investors are keen if appraisers are honest and reliable. The vast majority of professional appraisers are trustworthy. However, there have been cases of appraisers inflating property values to help sellers or buyers. If you’re concerned about this, you can ask for a second opinion from another appraiser or surveyor, such as these London’s surveyors and valuers.
What Is Property Valuation for Probate?
Probate is a legal process of distributing a deceased person’s assets. In the UK, if someone dies without a will, their assets will go through probate court. Part of this process is valuing the deceased person’s assets so that they can be distributed fairly.
Development valuation for probate is different from regular property valuation. A development appraiser will look at the potential value of a property after improvements have been made. This valuation type is often used for properties that the executor of an estate is selling.
An executor carries out the deceased person’s wishes, as stated in their will. In the absence of will, the probate court appoints the executor.
The executor distributes the deceased person’s assets to their beneficiaries. They should also pay any debts and taxes owed by the estate. The executor may hire a professional appraiser to value the property so that it can be sold for a fair price.
Property Valuation for Capital Gains Tax (CGT)
When you sell a property, you may have to pay capital gains tax. This tax is based on the difference between the sale price and the property’s original purchase price. You owe capital gains tax on the profit if the property has increased value.
Property valuation for CGT purposes is different from a standard appraisal. The appraiser will focus on the property’s value at the time of sale rather than its current market value. They will also consider any improvements you’ve made to the property since you purchased it.
This is important because it can help you minimize your tax bill. If you make significant improvements to a property, you may be able to lower your capital gains tax liability.
Let’s say you bought a property for $100,000, and it’s now worth $150,000. You decide to sell it and use a professional appraiser to get a valuation. The appraiser determines that the property is only worth $140,000. This means your capital gain is $40,000, and you will owe capital gains tax on this amount.
Advantages of a Property Valuation to Investors
As a real estate investor, it’s important to understand your property’s value. This will help you make sound investment decisions and maximize your profits. Here are the benefits of a property valuation:
1. It can help you determine whether a property is overpriced or underpriced.
If you plan on selling a property, a valuation can give you an idea of how much it’s worth. This information can help you price your property correctly and avoid leaving money on the table.
2. It can help you negotiate better deals with sellers, buyers, and lenders.
If you know the true value of a property, you’ll be in a better position to negotiate deals. For example, you may get a lower purchase price if you know the seller is overvaluing their property.
Also, if there’s a dispute over the value of a property, a valuation can help resolve the issue. There are companies providing a chartered surveyor expert witness who can give an accurate property valuation to back up your claim in court.
3. It helps you get better terms on loans.
If you’re planning to finance a property purchase with a loan, the lender will require a valuation. They need to know the value of the property so they can determine how much money to lend you.
Lenders typically use their own appraisers to assess the value of a property. However, you can also order your valuation. This may be beneficial if you think the lender’s appraiser is undervaluing the property. Your valuation can help you get a higher loan amount or better terms.
If you’re looking for a loan to buy an investment property, the lender will require a property valuation. It’s because the lender wants to be sure that the property is worth at least as much as the loan amount. If the property’s value is less than the loan amount, the lender may refuse to give you the loan.
A property valuation can also be used to get a home equity loan. This type of loan allows you to borrow money against the equity in your home. The money you can borrow depends on the value of your home.
If you think your home is worth more than what the lender says, you can order a property valuation to prove it. This may help you get a higher loan amount or better loan terms.
4. It can help you reduce your tax bill.
A property valuation can help you save money on taxes. For instance, if you’re selling a property, a valuation can help you lower your capital gains tax liability.
The appraiser will focus on the property’s value at the time of sale rather than its current market value. They will also consider any improvements you’ve made to the property since you purchased it.
For example, you bought a property for $100,000, now worth $150,000. You decide to sell it and use a professional appraiser to get a valuation. The appraiser determines that the property is only worth $140,000. This means your capital gain is $40,000, and you will owe capital gains tax on this amount.
If you didn’t get a valuation, your capital gain would be $50,000, and you would owe more in capital gains tax.
5. A property valuation can also help you appeal your property tax assessment.
If you think your property taxes are too high, you can order a valuation and use it to support your case.
6. It can help you make reasonable investment decisions.
A property valuation can help determine whether a property is a good investment. For instance, if you’re considering buying a rental property, a valuation can help you assess the potential return on investment.
The appraiser will consider the rental income, operating expenses, and market conditions to estimate the property’s value. This information can help you decide whether the property is a good investment.
As a Summary
As a real estate investor, it’s essential to understand the value of your property. A professional appraisal will give you a realistic expectation of your property’s worth and help you make sound investment decisions. It can also provide you with leverage in negotiations and ensure you’re getting fair compensation if your property is damaged or destroyed.